In March 2019, an IFRIC agenda decision was published to confirm the accounting treatment of cryptocurrencies applying the current IFRS framework. Based on the nature and characteristics of cryptocurrencies, the IFRIC agenda decision concluded that they do not meet the respective IFRS definitions of cash, cash equivalents or financial instruments.
However, it was confirmed that cryptocurrencies may meet the definition of either an intangible asset or inventory, depending on the circ*mstances. The different measurement bases that apply to intangible assets and inventory are discussed further below.
Similarly, the Financial Accounting Standards Board (FASB) issued a tentative decision in October 2022 that confirms that under US GAAP, crypto assets that meet a pre-defined scope should be classified as intangible assets and measured at fair value, regardless of the intention of the holder.
Furthermore, the December 2022 tentative decision confirmed that under US GAAP the movement in fair value should be presented in net income, and provided specific disclosure requirements applicable to crypto-assets.
Under IFRS, where an entity holds cryptocurrencies for sale in the ordinary course of business, the cryptocurrencies are considered to be inventory and should be accounted for in terms of IAS 2 Inventories. Inventories are typically measured at the lower of cost and net realisable value.
As an exception, broker-traders would be permitted to measure their inventories at fair value less costs to sell. Broker-traders are those who buy or sell commodities for others or on their own account. A broker-trader of cryptocurrencies would generally acquire the cryptocurrencies with the intention of selling them in the near future and generating a profit from fluctuations in prices or broker-traders’ margin.
The below sets out the measurement, presentation and disclosure considerations under IFRS of cryptocurrencies that are not held for sale in the ordinary course of business and would therefore be classified as intangible assets under IAS 38 Intangible Assets. The determinant factor in selecting the measurement base is whether an ‘active market’ exists. An active market is a market in which transactions for the cryptocurrency take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
FAQs
However, cryptocurrency is subject to major variations in value and therefore it is non-monetary in nature. Cryptocurrencies are a form of digital money and do not have physical substance. Therefore, the most appropriate classification is as an intangible asset.
What is the gaap treatment of cryptocurrency accounting? ›
Investment in cryptocurrencies is accounted for as an indefinite-life intangible asset under both IFRS and US GAAP, as – in most instances – it does not meet the definitions of other asset classes such as cash and cash equivalents, financial instruments or inventories.
How is cryptocurrency classified? ›
Many of the most common digital assets (e.g. bitcoin, ether, solana, cardano) are accounted for as intangible assets under US GAAP (crypto intangible assets).
How to account for digital assets? ›
Entities should track the cost (or subsequent carrying value) of units of digital assets they obtain at different times and use this value for each unit of digital assets upon derecognition when they sell or exchange digital assets for other goods or services.
What accounting method should I use for crypto? ›
The IRS typically requires the First In, First Out (FIFO) accounting method for crypto. Still, with proper tracking, you may be able to use other methods like Last In, First Out (LIFO) or Highest In, First Out (HIFO) to reduce your tax liability.
What is the accounting entry for cryptocurrency? ›
How Is Crypto Activity Recorded in Accounting? There are a few steps to the crypto accounting process: Record the book value of assets from the cost basis of the transactions for each asset under the intangible assets section of the balance sheet (with the date and time of the transaction)
Where does crypto go on the balance sheet? ›
They list it on their Balance Sheets as a “Digital Asset,” and since it's indefinite-lived, there is no amortization. Under U.S. GAAP, companies record Impairment Losses on indefinite-lived intangible assets when their value falls, but they cannot revalue them up outside of M&A deals.
What is the accounting policy for crypto? ›
ASU 2023-08 requires measuring cryptoassets at fair value in the balance sheet and recognizing remeasurement changes in net income for each reporting period. This requires applying Topic 820 guidance to cryptoassets. There are several areas of concern in applying Topic 820 for determining cryptoasset fair value.
How are cryptocurrencies reported on financial statements? ›
accounting purposes
Generally, investors record their investment in cryptocurrencies as an asset because it is a resource controlled by them and the investors can obtain future economic benefits from the consumption or realisation of the cryptocurrency held.
How are crypto assets treated in accounting? ›
Under IFRS, where an entity holds cryptocurrencies for sale in the ordinary course of business, the cryptocurrencies are considered to be inventory and should be accounted for in terms of IAS 2 Inventories. Inventories are typically measured at the lower of cost and net realisable value.
A digital asset is a digital representation of value that is recorded on a cryptographically secured, distributed ledger or any similar technology. Common digital assets include: Convertible virtual currency and cryptocurrency.
Is cryptocurrency an asset or a currency? ›
A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities.
How to account for cryptocurrency gaap? ›
Impairment of Cryptocurrencies
The concept of impairment is central to GAAP's treatment of cryptocurrencies. This is where GAAP's approach to cryptocurrencies as intangible assets becomes particularly relevant. If the market value of a cryptocurrency drops below its recorded cost, the asset is considered impaired.
How do you audit crypto? ›
A crypto audit is an examination of the financial records and transactions of a cryptocurrency project, exchange, or wallet to determine their accuracy, completeness, and compliance with laws and regulations. The audit also assesses the security and reliability of the underlying blockchain technology.
Does ledger report to IRS? ›
Does Ledger report to the IRS? It's unlikely Ledger reports to the IRS currently. As a hardware wallet device provider, Ledger isn't a top priority for the IRS. In fact, many users simply use their Ledger wallets to store long-term hodls, which is tax free.
How is crypto treated in accounting? ›
Under IFRS, where an entity holds cryptocurrencies for sale in the ordinary course of business, the cryptocurrencies are considered to be inventory and should be accounted for in terms of IAS 2 Inventories. Inventories are typically measured at the lower of cost and net realisable value.
How is cryptocurrency recorded in financial statements? ›
They list it on their Balance Sheets as a “Digital Asset,” and since it's indefinite-lived, there is no amortization. Under U.S. GAAP, companies record Impairment Losses on indefinite-lived intangible assets when their value falls, but they cannot revalue them up outside of M&A deals.
How do you show cryptocurrency on a balance sheet? ›
Since crypto has no tangible value, you should account for it on the balance sheet as an intangible asset. This means that you should document crypto at its purchase price, and not as its fair market value.
